Correlation Between Aave and Tranchess

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Can any of the company-specific risk be diversified away by investing in both Aave and Tranchess at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Aave and Tranchess into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aave and Tranchess, you can compare the effects of market volatilities on Aave and Tranchess and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Aave with a short position of Tranchess. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aave and Tranchess.

Diversification Opportunities for Aave and Tranchess

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Aave and Tranchess is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Aave and Tranchess in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tranchess and Aave is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Aave are associated (or correlated) with Tranchess. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tranchess has no effect on the direction of Aave i.e., Aave and Tranchess go up and down completely randomly.

Pair Corralation between Aave and Tranchess

Assuming the 90 days trading horizon Aave is expected to generate 1.0 times more return on investment than Tranchess. However, Aave is 1.0 times more volatile than Tranchess. It trades about -0.03 of its potential returns per unit of risk. Tranchess is currently generating about -0.11 per unit of risk. If you would invest  14,334  in Aave on February 27, 2022 and sell it today you would lose (5,032)  from holding Aave or give up 35.11% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Aave  vs.  Tranchess

 Performance (%) 
      Timeline 
Aave 
Aave Performance
0 of 100
Over the last 90 days Aave has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in June 2022. The current disturbance may also be a sign of long term up-swing for Aave investors.

Aave Price Channel

Tranchess 
Tranchess Performance
0 of 100
Over the last 90 days Tranchess has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Crypto's basic indicators remain somewhat strong which may send shares a bit higher in June 2022. The current disturbance may also be a sign of long term up-swing for Tranchess investors.

Tranchess Price Channel

Aave and Tranchess Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Aave and Tranchess

The main advantage of trading using opposite Aave and Tranchess positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aave position performs unexpectedly, Tranchess can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Tranchess will offset losses from the drop in Tranchess' long position.
The idea behind Aave and Tranchess pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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